Bank of Japan Governor Kazuo Ueda delivered a hawkish message on Monday, explicitly signaling a potential rate increase at the September policy meeting. Speaking to reporters in Asheville, North Carolina, following the G20 Finance Ministers and Central Bank Governors meeting, Ueda stated: "Monetary conditions remain accommodative, so we hope to continue raising interest rates. We will discuss monetary policy while taking into account upside risks to prices."
Ueda added: "We have raised the policy rate five times so far, so we need to carefully examine the cumulative effects on the economy. I hope to discuss at the next meeting whether the likelihood of the economic scenario materializing has increased, and whether inflation risks have grown."
This marks Ueda's final public appearance before the September 17-18 policy decision. According to Bloomberg data, overnight index swaps show market pricing for a September hike is now near 100%, and Ueda did not push back against these expectations.
Meanwhile, the hawkish camp at the Federal Reserve has also been issuing strong signals. Following Christopher Waller's warnings about inflation risks, Governor Michael Barr explicitly stated that if inflation does not cool sufficiently, the Fed should not hesitate to raise rates.
Market reaction was immediate: the 10-year Japanese government bond yield rose to 3.004% intraday, while the 30-year yield touched 4.197% — both hitting near 30-year highs. The Nikkei 225 index opened down more than 2.53% at 64,678.49 points, a single-day drop exceeding 1,700 points. South Korea's KOSPI index also fell sharply by 2.19%.
Accelerated Tightening: Breaking the Six-Month Convention
If the Bank of Japan announces a rate hike on September 18, it would mark the shortest interval between successive increases during Ueda's tenure, breaking the roughly six-month normalization cadence observed thus far.
Ueda also stated that economic data remains "broadly in line" with the projections in the central bank's July Outlook Report, noting that "there has been no major change in the basic thinking regarding monetary policy operations" going forward. He further pointed out that inflation trends are now very close to the BOJ's 2% target.
According to a Bloomberg survey of economists, Japan's key price indicator is expected to rebound to 3% by early next year.
Hajime Takata, the most hawkish member of the BOJ board, reinforced these expectations in a speech in Sapporo, Hokkaido. Citing his July call for consecutive rate hikes, Takata emphasized that Japan's economy has entered a new phase — partly driven by surging AI demand — and that Japan is no longer an "outlier" in monetary policy, requiring flexible responses to various developments including global dynamics.
Treasury Secretary Backing: Bessent Endorses Japan's Tightening
According to a U.S. Treasury Department statement, Treasury Secretary Bessent, in a meeting with Ueda on Sunday, emphasized the importance of sound monetary policy formulation and communication to stabilize inflation expectations and avoid excessive exchange rate volatility. He also expressed strong support for Japan's "decisive market and currency measures" to address the yen's severe undervaluation.
Bessent further stated that he expects Ueda to "do the right thing" on monetary policy, and described the recent yen movement as "fairly well managed."
As of Wednesday morning Tokyo time, the yen traded at 160.37 against the U.S. dollar, having largely given back the gains from the coordinated currency intervention by Japan and the U.S. on July 31.
Fiscal Expansion vs. Monetary Tightening: Emerging Policy Tension
Meanwhile, Japanese government ministries are seeking record-breaking budget requests for the next fiscal year, highlighting Prime Minister Takako Kato's fiscal expansion ambitions.
According to Bloomberg, the surge in budget requests partly stems from accounting method changes — Kato aims to end the long-standing practice of compiling supplementary budgets outside the annual budget framework.
Finance Minister Satsuki Katayama said after the G20 meeting that no participants expressed concerns about Japan's fiscal situation. Ueda, for his part, characterized the rise in bond yields as "following global trends."
However, the directional divergence between continued fiscal expansion and the central bank's rate hike path is emerging as a new variable capturing market attention.
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